Posted By admin on February 22, 2014
Current State of the Gold Mining Industry
The past three years have seen many established gold exploration companies rushing to Latin America in search of mineral deposits. Just a decade ago, the global value for an ounce of this precious metal was around US$400. Mining companies were reluctant to venture into countries where gold deposits could not produce healthy returns. However, in September 2011, the global bullion prices soared to a record US$1,921, giving companies that specialize in mining minerals a good reason to venture into South America. In other words, companies that had, until that time focused their operations in the big four producers of the mineral (Canada, the US, South Africa, and Australia), began to venture into smaller and often less politically stable nations in Spanish America. As a result, countries such as the Dominican Republic, Bolivia, Colombia, Guyana, Suriname, and Brazil have seen an increase in mineral explorations activities by mining giants in the recent past. In turn, some countries in Spanish America began to capitalize on the high value of precious metals in the market by pressing miners to pay steeper royalties and taxes. In 2011, Chile and Peru, two top producers of minerals in the region, were among the first countries to increase mining royalties for precious metal revenues.
Brief History of the Mining Industry in Latin America
Historically, two terms can best describe the mining sector of the economy in Hispanic America: profitable and controversial. In terms of profitability, about nine countries in this region have significant gold deposits. The largest gold producer in the continent is Peru, which is also the sixth largest producer of the metal in the world. According to a World Bank report, the country produced around 188 tons of this prized metal in 2011, which was roughly 6.67% of global output for that year. The production earned the country’s economy about $10 Billion, and accounted for about 15% of the country’s GDP that year. Most of the country’s reserves lie on the Yanacocha Mine, which is jointly run by Newmont Mining and Buenaventurda Companies. The economies of Argentina, Brazil, Chile, and Venezuela also depend heavily on mining as a source of revenue.
Nevertheless, controversy plagues the mining sector in Spanish America. This is primarily because majority of the top mining companies operating in this region come from abroad. Companies such as Barrick, Goldcorp, and Newmont are the major players in this space in the continent. Many local people consider these foreign companies as representations of neoliberal practices aimed at benefiting a few at the expense of many. In 2012, mining conglomerates operating in the Dominican Republic and Bolivia experienced the sentiments of locals, after weeks of protests and agitation led to renegotiation of royalty agreements in favor of the latter.
Opportunities for Mining and Investing in Latin America
Many economies in this region rely on natural resources for their growth and survival. An opportunity to invest in these resources has seen almost 25% of the world’s exploration efforts in metals from 1994 to 2012 go to South America. According to the Metals Economics Group, the continent produces 45% of global copper supplies, 50% of silver, and 20% of gold annually. Generally, about a quarter of global investment opportunities in natural resources focus on this continent.
However, economic opportunities often face some challenges. Some of the hurdles facing prospecting and mining in South America today include:
• Nationalization: Local residents and natives want their governments to be more directly involved in the exploration and mining of resources. They see this as the only way that their minerals will have a positive effect both socially and economically. In regards improving their economic fortunes, several of the aforementioned counties have developed a legal framework that includes a number of taxes aimed at the mining sector. Mining companies operating in Chile, for example, have to pay a 20% corporate tax in addition to a 35% withholding tax.
• Environment: Environmental degradation is of prime concern among residents living in resource rich areas. Gold mines face a barrage of criticism from environmentalists for their effects on water catchment areas, forest cover, human settlements, and animal life.
• Social economical relations: Precious metal mining has significant social economic effects among Spanish Americans. Social disorganization, criminal activities, deaths, protests, and diseases are just some of the challenges affecting communities in resource rich areas of the continent.
In summary, Latin American countries are heavily dependent on natural resources for their survival. Many countries are seeing new interest from mineral exploration companies even as traditional resource havens such as Peru and Chile continue to thrive economically from this precious metal. However, mineral exploration companies generally face numerous challenges amidst the investment opportunities in this continent.